$1.5 Billion Microgrid Market Opportunity Emerges in Kenya

A confluence of innovation, risk taking, and public and private effort has created a five-year, $1.5 billion microgrid market opportunity in Kenya, leading Germany’s TFE Consulting to dub the East African nation, “The World’s Microgrid Lab.”
International startups are deploying innovative mobile ‘pay as you go’ (Pay-Go), home solar, and microgrids in off-grid rural areas across the East African nation and far beyond. Their work is backed by development agencies, regional governments, non-government organizations (NGOs), venture capitalists and corporations.

It’s still early to know, but the rapid development of zero- or low-emissions microgrids and distributed energy could prove to be the linchpin of an emerging new model for environmentally friendly energy and socioeconomic development.

“Globally, microgrids for electrification have a market potential of $400 billion,” says the report, “Kenya: The World’s Microgrid Lab.”

Looking ahead, TFE estimates that over the next five years the number of microgrids installed in Kenya, alone, will surge to between 2,000 to 3,000.

As a result, Kenyans are taking their first steps up the sustainable energy ladder.

A virtuous self-sustaining spiral

Sharply declining costs and widespread availability of solar PV, LED lighting and DC electricity — and more recently lithium ion battery storage — are key factors opening up the green distributed energy and microgrid market opportunity in Kenya and across Sub-Saharan Africa and other developing market regions. The market also is driven by widespread access to wireless/mobile money and communications networks.

According to TFE’s study, just 20 percent of Kenyans have access to grid power. Nearly nine in 10 – 88 percent – have mobile phones. Most use mobile e-payment services, such as MTN’s M-Pesa – to pay for goods and services.

Kenyans are using these mobile money services to pre-pay for off-grid home solar or ‘microgrid as a service’ energy services in small increments as their needs and ability to pay warrants.

“Mobile money alleviates many of the drawbacks associated with earlier cash or scratchcard systems,” says the TFE study. “For one, it vastly simplifies revenue collection: no cash changes hands. Cash-based revenue collection is a significant administrative challenge for energy access businesses, as seen in other energy access markets such as India.

“The cashless payment system unlocks the possibility of running remotely located energy vending machines in Kenya. Consumers and businesses benefit, as transaction, electricity and business expansion costs fall,” TFE says.

A fast growing crop of solar pay-go and microgrid pioneers

Azuri Technologies, BBOX, Fenix International, Lumos Global, Mobisol and Powerhive number among the growing roster of ambitious, young solar mobile Pay-Go and microgrid developers providing services in the region.

Multilateral sustainable energy and development programs, such as USAID’s Power Africa, launched by former President Barack Obama, have played a critical, formative role. Reaching out to aspiring sustainable energy entrepreneurs in Kenya and across the region, they have been providing seed capital, technical and other forms of assistance and support.

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Success breeds success, and now the effort is attracting both equity and debt financing from leading international venture capital and private equity investment groups and multinational corporations. The growing list includes ABB, Caterpillar, GE, Khosla Ventures, Paul Allen’s Vulcan Facebook, Microsoft and Jaguar Land Rover and other African wireless/mobile telecoms services providers, such as Airtel and Orange SA.

“Kenya shows that the global microgrid market is ready for significant private investment. While there still remain some challenges – especially around the regulatory framework and aggregation of projects – there are now enough businesses with viable business models to provide early stage, strategic or even crowd investors with commercially attractive opportunities.

“The medium-term growth potential for the microgrid market in Kenya, as well as in other energy access markets including in Africa, South and Southeast Asia, is very high,” TFE Consulting writes in the executive summary of its report.

According to TFE, a $1.5 billion microgrid market opportunity exists in Kenya over the next five years. Significantly:

There are more than 65 microgrids up and running in Kenya

The cost of building out and delivering microgrid power in Kenya has dropped to $5-10/watt

Mobile money makes up almost 67 percent of all (cashless) transactions via the National Payments System, according to the Central Bank of Kenya.

Myth busting

Some still view Kenya and other developing countries as too industrially undeveloped and risky to offer a substantial microgrid market opportunity. Similarly, Kenyans — rural Kenyans in particular — are considered too impoverished to serve as the basis of a sustainable business model.

But it’s important to note that proportionally Kenyans spend more of their budgets on energy — in this case ages-old forms like kerosene and charcoal — than residents of industrially developed countries. And as the experience of pioneering solar PV-battery energy storage PAYG and microgrid companies is revealing, they are more than willing to pay as much for safer, cleaner and more reliable and efficient power and energy these technologies now offer.

Furthermore, the pace and scope of socioeconomic development that has been taking place in Kenya over the past decade may be under-appreciated.

“Kenya is the economic lion of East Africa,” TFE writes.

“Its GDP almost quadrupled from $16.1 billion in 2004 to $63.4 billion in 2015, growing twice as fast as the average rate of Sub-Saharan Africa. Its growth has been driven by a relatively stable currency, low inflation, low fuel prices and substantial public investments in energy and transportation. This has boosted an expanding middle-class with steadily rising incomes,” says the report.

Industry Perspectives

Microgrids bring benefits to communities and cities, but economic barriers can stand in the way of their deployment. Mehdi Ganji, smart cities vice president at Willdan Energy Solutions, discusses the use of resilience tariffs to overcome these barriers in an interview with Yasmin Ali, Microgrid Knowledge contributor.

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